Licensing Central Fill Services for Retail Pharmacy Chains

Many small and medium retail pharmacy chains are re-examining their fill and dispense operations in the face of industry change that’s challenging their traditional business model.

Many are thinking about a central fill approach used by large national pharmacy chains. But the high cost and operational hurdles of owning and operating a proprietary central fill facility makes that a fleeting thought rather than a serious consideration for most small and medium retail chains.

However, there is an option that can give small and medium retail chains the same if not more operational and financial benefits as traditional central fill for a fraction of the cost. That option is partnering with a third-party to license central fill services via a fee for service model. This model allows the chain to still maintain the pharmacy license, pharmacist, patient care and prescription ownership while allowing an industry expert to assist with the dispense and distribution.

Let me explain when small and medium retail pharmacy chains should consider central fill as a service, the functions central fill as a service performs, the key factors to weigh when considering central fill as a service and the benefits central fill as a service can provide.

When to consider central fill as a service

There are three common scenarios that often trigger a small or medium pharmacy chain to consider central fill as a service when the capital requirements of traditional central fill take that option off the table:

New operational goals. The first scenario is a new operational goal. That new goal could be a retail pharmacy chain becoming a 340B contract pharmacy, finding ways to lower inventory costs, expanding specialty or offering mail order/local delivery. Achieving the goal requires more effective drug inventory and distribution management, which central fill as a service can provide.

Prescription growth. The second scenario is an increase in prescription volume that can’t be met by the chain’s existing in-house resources. The increase in volume could come from a new payer contract under which pharmacies are part of a preferred network, expansion of specialty or other growth mechanisms. The chain needs additional prescription handling capacity provided by central fill as a service.

Expanded clinical services. The third scenario is a desire by the chain to expand clinical services for customers. The chain is hesitant to shift resources away from filling prescriptions to running vaccine programs or providing medication therapy management. It wants to provide both. One way to do that is by moving to a licensed central fill services model.

Seven core functions provided by licensed central fill services

Central fill as a service uses a third-party partner to fill and dispense prescription medications for a small or medium retail pharmacy chain from a central location rather than onsite at the chain’s individual pharmacy sites. The vendor performs the dispensing steps after the adjudication of the prescription until the delivery of the prescription to the pharmacy sites or directly to the patient. The seven basic steps are:

Labeling

Dispensing

Imaging

Capping

Verifying

Packing

Sorting/Mailing

In the traditional central fill model used by large pharmacy chains, the chain owns and operates its own facility, equipment, technology, delivery trucks and personnel. In the central fill as a service model, the small or medium retail pharmacy chain still maintains the pharmacy license and employs the pharmacist, but does not own its own equipment, technology, central fill delivery and personnel with the exception of the pharmacist. Instead, the chain pays for the use of those services typically on a per-prescription fee basis.

Why central fill as a service makes economic sense

Two concerns I often hear from small and medium retail pharmacy chains considering central fill as a service are workflow and control. Although central fill as a service can greatly assist them in each of the three trigger scenarios I described, they hesitate because they fear a more cumbersome workflow and less control. Neither is an issue.

Central fill as a service does not require extra steps or technologies at individual pharmacy sites. The same process is followed after a site receives a prescription. It’s just filled offsite instead of onsite. Also, small and medium pharmacy chains and their individual sites still own the prescriptions and the patients when they use central fill as a service. Outsourcing the seven basic central fill functions to a third-party partner does not change the pharmacy-patient relationship in any way. In fact, it helps foster that relationship.

Once those two threshold concerns are resolved, small and medium retail pharmacy chains should weigh four factors when considering central fill as a service in comparison with the traditional proprietary central fill model:

1. Capital expense. Licensing central fill services requires no upfront or ongoing capital and eliminates inventory on-hand at the facility until the point of dispense. It does require an adequate cash flow to pay the per prescription fee for the services. Owning and operating a central fill facility requires upfront capital to launch and ongoing capital to maintain the system and hold inventory.

2. Prescription volume. Given the capital required to own and operate a central fill facility, a small or medium pharmacy chain must have enough prescription volume to cover fixed overhead costs. The minimum volume falls in the range of 1,500 to 2,000 prescriptions daily. Chains need the same volume to make licensing a viable option. But without the fixed overhead costs, licensing carries less financial risk if prescription volume dips below that threshold.

3. Staff expertise. Most people working in key positions at chain pharmacies have a clinical pharmacy background, not a drug distribution background. When central fill becomes an option, the question is who will run the central fill operation? With a licensing model, that drug distribution expertise is provided by the vendor. Owning and operating a central fill facility may mean shifting a person with clinical pharmacy expertise into an unfamiliar position that demands drug distribution expertise.

4. Labor costs. Licensing central fill as a service requires no additional personnel. Labor costs are built into the fee that the pharmacy chain pays per filled prescription under the service model. Owning and operating a central fill facility requires hiring personnel to run the facility. That expense adds to the fixed overhead costs that must be covered by prescription volume.

Central fill as a service offers multiple short and long-term benefits to pharmacies

A small or medium retail pharmacy chain that chooses a central fill as a service model can meet its new business needs because that model offers the following short and long-term benefits:

Focus on the patient. Pharmacists are clinicians trained and educated to help patients. Their time is best spent counseling customers on medications, use and adherence. Less time spent counting pills and putting them in bottles gives pharmacists more time to focus on patients.

Clinical program support. Related to refocusing on the patient is support for clinical programs. Pharmacies can reallocate resources previously spent on filling prescriptions to clinical services like vaccine programs. Central fill as a service can support other programs like medication synchronization by custom packaging a patient’s multiple prescription medications.

Efficient dispensing. Central fill as a service makes dispensing medications more efficient. Fewer resources are required to process a higher volume of prescriptions. That change lowers a pharmacy chain’s per prescription fulfillment costs.

Improved accuracy. Central fill as a service improves the accuracy and, therefore, the safety, of prescription fulfillment. That starts with dispensing the right medications in the right dosages in the right counts. Central fill as a service also captures images of each prescription during the fulfillment process to create a visual audit trail that verifies prescription accuracy.

Lower inventory costs. Central fill as a service lowers a chain’s operating costs by lowering its inventory costs. It does that by the vendor owning inventory until the point of dispense and maintaining medications at the central location rather than onsite at the pharmacy. Inventory is held at the central location and not charged to the chain until the prescriptions are dispensed.

The many long-term benefits of central fill as a service include:

Scalable capacity. The prescription fulfillment capacity created by licensing central fill services can scale with the retail pharmacy chain as its operations expand. No additional physical space or personnel costs are required.

Small and medium retail pharmacy chains that adopt a central fill as a service model will know they made the right decision when they see prescription volume go up and drug inventory and labor costs go down. That’s a return on investment that few small and medium retail pharmacy chains can afford to pass up in today’s increasingly competitive pharmacy market.

Mark Edwards is vice president of product management and engineering for McKesson High Volume Solutions. In his current role, Mark is responsible for product strategy, engineering, analytics and strategic partnerships for all products within McKesson High Volume Solutions. Mark has been with McKesson for more than 11 years, focusing on pharmacy and healthcare technology product development, strategy and operations. He earned his BS in Industrial Engineering from Georgia Tech with a certificate in accounting.